tv Squawk Alley CNBC September 21, 2018 11:00am-12:00pm EDT
the question for investors here, what's the mix of iphones going to be in the quarters ahead. that will have a big impact on margins and average selling prices >> seeing tim cook at the front door josh, morgan brennan, jon fortt here at post 9 the cycle is not the cycle any more this fills up quickly now.
>> carl, if you have a capitalist bone in your body, it melts your cold, cold heart. they're selling phones today that start at a thousand dollars and people are lining up outside. you would say it is a testament to today's economy, but apple has been pushing the envelope on margins for a long time. this is a new level for them it is a statement that goes against so many of apple's critics that claimed over time, the samsungs of the world, name a company to drive down apple margins, they have to come out with cheaper phones. they eliminated the cheapest phone, and sold a more expensive, bigger one. you have to see how the holiday quarter turns out for them they used cash to have this advantage of retail locations like this one. >> josh, it is always anecdotal, is there a way to sort of characterize the wait, the line versus prior door openings
>> reporter: 6:00, 6:30 local, about 30 people were in line i think there's been a change there. how we buy our products, including our iphones switched we buy more online you remember this. research analysts used to study physical lines so carefully. they would study the lines, compare them to prior years, prior cycles i'm not sure in this era where we now buy so much more online, including new phones, whether the line, the physical line is quite the true, accurate barometer of demand that it was in years past. >> apple has military precision in how they execute this initial day's sales. you can preorder, but for in store pickup, they give you a slot when you're in line, they bring you in, have different lines for different things, usher you out a different door at some stores
so you don't block traffic coming in. way different from five or six years ago. >> i am curious how we look at this a month from now, you have this lowest price of three models that isn't available. and whether it creates a longer tail in terms of people coming in to look at devices and buy devices in the coming weeks. >> few weeks after they hit that trillion dollar valuation. we will watch it closely good morning, it is a little after 9:00 a.m. at micron headquarters in idaho, 11:00 a.m. on wall street. "squawk alley" is live ♪ ♪
♪ good friday morning. i am carl quintanilla, with morgan brennan and jon fortt at the post 9 of the new york stock exchange apple is not the only one today, faang seeing weakness. two names to single out, apple, the devices go on sale today, and amazon after yesterday's alexa appliance unveil joining us, scott divet and paul holland. nice to see you both >> thanks for having us. >> scott, we're heading into the holiday season when you get big product launches what are you making of this year and your sense of how stocks trade around that activity >> certainly amazon has a nigce product line going into the holiday. its business should do well, the u.s. economy is very strong. i think amazon will definitely
lead trading activity, be one of the stronger stocks going into the holiday period, but interestingly the advertising businesses tend to do well during the holidays as well, we anticipate alphabet and facebook do well in the period as well. >> paul, looks to me like you have an interesting contrast between apple selling these thousand dollar plus phones on one hand and amazon announcing a fleet of products under 250 bucks. the temptation is to compare the two. i'm not sure amazon could do what apple is doing, even if they wanted to not sure apple wants to do what amazon is doing, which might be selling a fleet of accessories how do you parse between the two and who is likely to succeed, maybe both >> i think you nailed it i think they figured out segmentation they know where their strengths are. i don't think apple has been a discount provider of anything, and i'm not sure it is the right position for amazon to be a
premium provider of anything i think they're both in a great spot and i think just across the board now, larger tech companies are really well positioned for a whole variety of reasons >> scott, i want your thoughts on google and alphabet and specifically whether there's a larger reckoning coming for the company. few weeks ago you had that empty seat that spoke volumes in terms of a ceo not there from the company. just today, more negative headlines or sort of controversial headlines regarding discussions within the company in terms of search results and where they place what how should we think about all of this are regulators coming for them here in the u.s. >> well, regulation is certainly coming in the u.s. and already begun to in europe for alphabet and facebook the commercial internet existed for more than 25 years now, so regulators have been somewhat
asleep at the wheel or not focused on this sector and are beginning to put rules or guardrails in place, so it is not something we think in the long run will be damaging to the companies, it will just force them to make modifications to business models because frankly there haven't been rules to date as relates to business performance and stock performance, we're not going back to shopping at kmart and watching vcr tapes, so the change that's happening and is under way is only going to continue it will continue to favor these companies. alphabet and facebook included in that as well as amazon and others >> paul, i wonder when you see what the eu regulators are looking into when it comes to how the big providers of services like amazon with vast troves of data, does that influence how you invest,
whether it is an expectation that third party data is treated differently in the future or perhaps a concern that certain types of capabilities big data wise will be walled off? >> well, i certainly think we're paying attention to all of the privacy issues and europe is doing a lot there. there's quite a bit happening in china and i would agree with scott, i think the u.s. has been pretty slow to try to tackle some of the things happening on the internet side, but i do think there's a different piece of this. we can do all of the regulation we want here and in europe fact is, the chinese are innovating with a large domestic marketplace. they have the equivalent of faangs and every one of these pieces and operating under different rules from that perspective. we just have to be careful about these kind of things don't want history to repeat itself we have seen it happen in the past, we overregulate, then are
in a situation with a disadvantage right now when you look at what's happening across the board in things like ai, machine learning and so forth, these are places where we literally have to win we have to be in position to be competitive and i don't think the focus should be around which regulator is going to do which to screw down the screws on the google and facebook. i think we should be looking at what it is going to take to be the global winners in these spaces and that takes innovation, it takes strength of engineering, focus around all of these data sets and ai, and that kind of runs counter to the notion of wanting to regulate everything >> scott, i wonder what you make of comments this week that suggest all of this innovation will start to take on a nationalist bend jack ma said about a 20 year cold war regarding trade, i know you cover alibaba. you had eric smith talk about a
bifurcated internet, half of the web controlled by the chinese with their own rules is that something to think about over the medium term >> absolutely. i think paul addressed some of these things a minute ago. regulators within the united states have to be somewhat careful in terms of regulations put in place to control u.s. based internet companies, given the fact that each one of them has an equivalent in china and given where innovation is heading, we want these companies to have the freedoms and flexibilities to continue to move forward as it relates to the current status, some of this is political positioning in terms of recent commentary out of executives and otherwise, but definitely something to monitor. >> scott, paul, fascinating times. so many things happening in so many ways. see you next time. thanks >> thank you. coming up, micron tariff
warning. the chip maker saying the u.s. china trade war could impact its financial results for as much as a year we have the ceo, sanjay mehrotra, joining us exclusively. that's next. then more on apple's big day, lining up to get their hands on the newest, most expensive devices. we speak with the former head of retail, ron johnson. "sawaly"ilbeig back this isn't just any moving day.
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take a look now at shares of micron, down 3.5%. the chip maker reporting fourth quarter earnings beat, but weak guidance citing president trump's tariffs on chinese imports as one key factor that could effect the gross margins sanjay mehrotra is the ceo of micron and joins us now. sanjay, great to have you. >> good to be on the show, jon >> want to get into the trade stuff. first i want to talk big picture and what's effecting the landscape for you guys on one hand, you're talking about solid state drives and big potential those have in the next couple of years, faster drives to drive some margin and revenue. on the other hand, you're dealing with chip shortages from intel that are effecting demand as i understand it explain the balance and how it is likely to play out in the next 12 to 18 months >> jon, our markets that we had
are different. the new micron is different from micron in the past we have solutions that are critical for data centers, notebook computers, mobile phones, automotive, all these applications what we referred to regarding the chip shortages in the first cal first quarter relates to certain cpu shortages. by no means see it as a long term trend, it is effecting q 1, but if you look at gross margin guidance and revenue guidance for fq 1, this is a solid guidance here. micron is extremely focused on building high value solutions such as these you mentioned earlier and continuing to focus on technology and bringing down costs and strengthening profitability of the company >> we have heard from some in the trump administration that nobody is likely to feel the
tariffs. maybe they're listening now to what you've got to say about the impact that the tariffs are likely to have on micron what is the impact and how much of a pinch do you expect it to be before you make some adjustments? >> you mentioned that in fiscal first quarter we will have an impact of 50 to 100 basis points in our gross margins, and that effect is included in the 57% to 60% gross margin guidance we provided, and of course it is related to some of the products that we import into the u.s. that's manufactured in china, and we're focused on mitigating that manufacturing keep in mind, vehicle manufacturing is in other parts of the world, including u.s., it's our assembly and test operations done in china, and some of those products are
imports into the u.s. that are impacted by tariffs, and we are extremely focused on mitigating those. in fact, cost of mitigation of those that is under way now is also included in the gross margin guidance we provided, and that cost of mitigation has certain impact we said that over the course of next three to four quarters we will be able to mitigate this effect but what's important to understand, we are a very global company, very diversified in terms of our markets and customers across the world, and we are very focused on continuing to strengthen our product towards high value solutions and driving the growth of the company just let me point out that fiscal year '17 we just completed, micron reported over 30 billion in revenues that makes us the number two largest semiconductor company in the u.s. if you measure by profitability.
this is why we are very confident about the future of the company and announced a $10 billion buy back, consider our shares undervalued and looking at opportunities to do share buy back we mentioned in the call we had -- we are very confident about the opportunities in our markets and our industry and micron's execution >> sanjay, asking you to generalize here. as you adjust to potential tariffs, is it easier to do that through supply chain changes or pricing and if the tariffs end later, is it easier, how easy is it to go back to the original supply chain or pricing models >> what's important to understand is that micron actually has a very global well diversified supply chain we have our manufacturing
with introduction of icloud, a lot of people thought storage would no longer be the marker of a premium phone, but it is i'm sure that makes you happy. does it stop here or in a couple of years premium high end phone has to have a terabyte of storage on board >> you are absolutely right, john there are many phones out there with a half terabyte in them this is the trend in data, that everything needs more data we all need to consume, use, value data that's driving the growth not only of flash in the phones today and the day is not far when you will have a terabyte of flash in smart phones as well. it is not only flash but also the features such as facial recognition require more dnam.
so that content which is our memory that micron makes is increasing as well this is really a double play for us in terms of more memory, more storage that is going into the new phones, and it is not only about high end phones, even mid range phones across the world need more and more memory and storage. this is just one of the major markets for our products again, as i said before, we have well diversified secondary demand growth trends that position us very well. >> i threw you an underhanded pitch there. thank you. the ceo of micron. thank you. >> thank you when we come back, the 2018 tech ipo trade goes on after an important week today, online retailer farfetch. we talk to the ceo how high end brands are making an impact on brands are making an impact on e-commerce
(john) we were both working on that first network that would eventually become verizon's. back then, the idea of a nationwide wireless network was completely unreasonable. but think about how important that first call was to our lives. it opened the door to the billions of mobile calls that we've all made in the last 34 years. sometimes being first means being unreasonable. i'm proud i was part of that first call, and i'm proud that i'm here now as we build america's first and only 5g ultra wideband network with unprecedented wireless capacity that will not only allow for phones to be connected, but almost everything-- transforming how we all live, once again. (bob barnett) as you know, this call today is the first call that we've made on the cellular system.
what a week for ipos farfetch has turned. you see it in that 26.50 to 27.50 range. we are looking at a gain on top. the momentum behind new issues, one of the more interesting parts of the market. >> we have the ceo on as soon as it starts trading. luxury retail, an interesting space, given amazon's overall dominance it seems, at least the way we talk about it e-commerce at large, there's still room. let's get to the european close. four minutes until they wrap up there. >> carl, it is a lot of green on the screen a theme all week european markets posting solid gains. brexit is front and center for investors, european leaders wrapped up talks during a summit in austria between the uk and
eu the pound had the largest one day drop after theresa may says the uk and european union were at an impasse in brexit negotiations her comments a day after donald tusk said uk leaders plan to withdraw from european union eu leaders will press for a brexit deal next month may reiterated britain is prepared to walk away without a deal >> the eu should be clear. i will not overturn the result of the referendum nor will i break up my country. we need serious engagement on resolving two big problems in the negotiations and we stand ready >> in an apparent jab at the tone of the other european leaders during negotiations,
they add that healthy future relations were at risk sterling sinking to a session low. down 1.5% against the dollar overall. jon, back to you guys. >> i'll take it from here. you probably heard the bell ringing, trading has begun for farfetch which just went public a few moments ago. up 27.09, up 35% from $20 set. and we're going to have a ceo on in a little while. stay tuned for that. >> they're happy back here with that 35, 36 pop above that price initially. also apple new iphone models on sale around the world. our next guest says it is worth the upgrade. ron johnson joins us next. and a major programming note,
6500 soldiers short in the goal of signing up 70,000 troops for the fiscal year. they blame the shortfall on the strong economy the other service branches met their targets. french president macron meeting his palestinian counterpart in paris a few weeks after the u.s. announced decision to end its decades of funding for the u.n. agency for palestinian refugees. abbas seeking more funding to make up for the shortfall. north korea state video showing video of events in pyongyang. kim wants a second summit with president trump as well as soon as possible. vietnamese president, the country's second in command after the communist party leader has died of serious illness. he hosted president trump during his first state visit to vietnam last year. he was only 61 years old you are up to date
that's the news update this hour back downtown to "squawk alley" and carl, back to you. >> sue, thank you very much. tim cook as you saw at the top of the hour making an appearance at the palo alto store for the debut of the new iphones. chinese rival serving free juice to customers waiting in line outside apple stores in the uk with the line get juice that lasts, followed by no traces of apple. joining us, ron johnson, co-founder of enjoy.com, former head of retail at apple. ron, always good to talk to you. welcome back >> thank you, carl >> we love getting your insight on days like today when retail at apple gets a heavy dose of attention. sounds like you're bullish on at least the qualities of the phone versus pricing people are talking about, right >> yeah, i am totally bullish on what apple has done.
for the last 11 years, they've defied gravity the history of consumer electronics is you launch a product and it comes down in price, but because of their incredible investment in hardware, in software, they have been able to maintain and increase prices and that's because people see extraordinary value in the new phones. i think this year is no different. >> we had warren buffett on air a couple weeks ago, talked about a thousand dollar phone being underpriced in his view, a big shareholder, because of productivity it brings you, tools in your life it replaced do you have in your head a dollar number where people say that's a little rich >> i would have thought $600 a decade ago but today, it is a thousand. i don't know where it will go. but phones, they're the most important item in our life, they're the center of our digital hub, it is how we communicate with people. we use them hours a day.
i think apple's valuation as a company is worth every penny they've earned it because they've had more impact on people in a positive way through the darn phone than any company in the history of mankind. >> ron, i was there with you at tyson's corner when the first apple store opened and i remember the focus then of you guys, a team around steve jobs was on switchers, switching from windows pc to mac, getting an experience in the store that would enhance that how do you see the effect of the stores having shifted as it is no longer primarily about the mac, it is about the phones, perhaps the watches, the ecosystem wirelessly around those mobile products. >> well, angela who is leading the story is clear i think she's exactly right. what apple wants is deep engagement, so people go to the store today to learn how they
can do more, not only with their product, with the entire apple ecosystem. how can i use my watch now for help, how that sends to the doctor they have an incredible program called today you can go into the apple store app, see all of the classes, register, pick them out. these are at every store throughout the world so the stores are left to getting new customers, deepening the relationship with that loyal base which is incredibly large >> ron, you've got a company you started that you run called enjoy. you partnered with at&t to deliver the latest iphone products to some of your clients, some of your customers. what are you seeing in terms of early activity and early orders? >> it is unbelievable. we just delivered our first new iphone in the uk a few hours ago. we are starting here in the u.s. a lot of people don't know what enjoy is, but the way i would
say it, today is the day the 11th generation iphone meets first generation mobile store. we're inventing mobile retail. that's what our team is doing. the first frontier for retail is the physical place like an apple store. the second frontier is your digital device that came with delivery we think the final frontier is your own home. we actually deliver the product with a person through the door and we have all of the accessories and things you may want to use, but we're doing on demand mobile retail, and today we're in 50% of at&t's customers have access to one of our experts. >> ron, you mentioned home, i want to switch gears we had at least 15 new smart home devices launched by amazon yesterday. when you look at that race for the home and smart technology in the household, is apple behind the ball >> no, i don't think so.
apple's home kit works well with all of these products. you've got a lot of people competing for the home google is competing, apple is competing, amazon is competing i think long term the race is between apple and google they're incredible, both companies, at software, at ai. i think these products are more and more about software rather than the hardware. it is easy to put out a lot of products it is hard to put out great products that are easy to use. >> interesting that you say apple and google when amazon bought ring. there are services behind these products they have introduced features in their fire os products that allow you to talk to a person to help you figure it out from right there on the screen. why do you put them behind those two leaders? >> i don't think they're behind, i'm saying who is going to win long term.
amazon is a retailer, an online retailer that specializes in low price and specialize in fast delivery the history of man kind is that premium companies tend to innovate, tend to have the profit margin to create amazing products you have to separate the volume of products with impact of products i believe that google and apple are much better at engineering and software i think at the end of the day, that's what makes these things work it is really complex to connect a home, get your devices to play together it takes incredible investment in software. >> we have been talking about the battle for your living room for years. it rages on. ron, thanks again. talk to you soon when we come back, high expectations wait for it, for canadian cannabis and pot stocks ahead of next month's nationwide
legalization a report from ontario coming up. first, rick santelli what do you have your eye on >> i keep looking up at the board. we stabilized with low volatility at some lofty yields, 307, 308 and 10s can the interest rate market still self regulate itself that's a key point we're going to discuss after the break to discuss after the break ♪ we never forget... that your business is our business the united states postal service. priority: you
the hour stocks are going to book the best week in two months. should you get more bullish? is nike or underarmor the best performing. traders give you the flag. and mario gabelli with us. find out how high he thinks stocks climb from here all at noon. morgan, we're about 15 away. see you then. >> sounds good london based retailer farfetch going public here at the end of the nysu. shares up 42% now. farfetch which doesn't own the inventory itself joining us, founder and ceo. >> thank you for having me. >> strong start to first day of trading for your company you operate in a niche area of
e-commerce that's the luxury high end area, the only area at this point that amazon hasn't conquered. you have growing competition in the space. money you raised today, how are you putting it to work >> obviously it is a great day for the team we have been over ten years building a platform for luxury fashion and for boutiques, for brands and for consumers, and that's what we're going to continue to do very early days, huge opportunity in this market $300 billion industry today, own 9% is online 91% is still in physical stores. the online is growing at 25% a year and this represents over the next ten years 100 billion plus in online luxury and that's what we're going to go for. >> historically, some of the luxury brands have been slower
and more hesitant to get into e-commerce space how are you able to convince them to partner with you in light of that, what are people buying? >> yes i think luxury is about creativity, aesthetics and rightly so the brands have been slow because they need to choose absolutely the right channels. it is where your product is, how is this played and serviced and level of service to customers is really important but the brands over the ten years we build relationships of trust within the industry and i think the brands have fully embraced that this is an opportunity actually to penetrate markets like china, new generation of consumers coming onto the luxury market
and digital first. so it is a great opportunity we want to be their partner, their platform. >> i wonder if you think luxury brands, generalizing, are afraid of e-commerce early on, thought it was down market somehow do you think that's true >> i don't think, you know, i think brands move cautiously and they choose their partners carefully and channels carefully, and as these channels developed, the brands have adapted to them and they're now using social media, they're now using digital media extensively to create desire, to drive discovery of new products, and obviously transactions as well so i think obviously it is a gradu gradual phase, but we're at the inflection point where the brands have seen this as
tremendous opportunities. >> jose, who is your customer, where is your customer for those not familiar with farfetch, a thousand dollars is relatively cheap for something selling on there that's not on sale you have great diversity in look of the models on the site. where is the customer geographically, how sensitive to economic fluctuations? >> so we have two-thirds of customers are women, one-third are men. very stylish clientele obviously and i am biased, but they love discovering new brands, new emerging designers, but also love discovering from the big brands perhaps one product or a new creative concept coming out. i mean, it is a passion for
them, for our customers, for our boutiques and brands and our team >> before we let you go, i have to ask about the fact you don't carry inventory. as you grow in scale, will that change many are valuing you as a tech company. if you carry inventory, that could change. >> we are a technology business, an innovation partner to the brands and boutiques we are a platform. we will continue to be this innovation partner to hopefully enable the entire luxury industry to fully capture the online opportunity >> thank you for joining us at post 9, founlder and ceo of farfetch that just began trading. jackie deangeles has a news alert. >> look at shares of duke, down 2% now on news that duke says a dam was breached at a plant in
north carolina, coal ash may be flowing into cape fear river sutton power plant this was a concern all week that there could be flooding damage from florence that didn't necessarily come during the storm, could come after the storm and cause extreme flooding in extreme situations. we're going to monitor the situation with duke energy we'll bring more as we have it the stock is being impacted on this let's get over to cme. rick santelli for the santelli exchange rick >> hi. you know much talk of course about interest rates, especially right before they crossed over and stabilized solidly above 3%. most of last week, because we settled a whisper below 3% for the most part this week, we have been resting comfortably above 305. the reason i think it is all so important, a, because we all knew that sometime around middle of september a stream of buying would dry up that was leftover
from tax reform. but there's so much more going on than that obviously the stock market is powering ahead, which brings me to the point that the int interlopers always amaze me, tht rates and to some extent foreign exchange obviously after any major crisis, a bit out of phase. it needs to be reharmonized, so to speak look at the following chart. this chart starts in november. it's the s&p 500 against 30-year bonds. and it's not the ten year or seven year or five year wouldn't work but 30 year is the farthest away from where the most influence of the federal reserve is during this normalization process. and you can clearly see on the chart that as the end of last year approaches and what we saw interest rates take hold, stocks had started to move higher, in the beginning of the year the
s&ps did not like that they started to back off and move sideways. rates were part of the reason for the equity flatness and reversal you could see they're both in harmony again. the point of this is as we get ready for another tightening a third this year pushing you go to 2.00 and 2.25 which will likely be the result on the statement. what the fed needs to work on is to try to back away from the notion they're on this path, a linear path of raising rates, get back to a relationship between markets and read the signals. the obvious problem, and you all know what the answer is, that manipulations of the past have led to a distorted yield curve we come right back to that argument they need to distance themselves from that and truly express to the markets that they will observe, just like that chart, when one market or the other seems to pay more attention
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because we've seen every other place in the world that has legalization and there will be a lack of product over the first year many of the producers are ramping up production but there's still a lag for that to catch up >> reporter: market size has been tough to pin down as well, guys we've heard figures ranging from $4 billion to $10 billion in the first two years. one thing is for sure there will be a limited amount of product available in year one. things like edibles won't be able to be retailed until 2019 that's something a lot of producers are excited about. back to you. >> seems like you have a lot of product right there, kate. don't get lost in that >> it's your "i love lucy" moment >> reporter: it is >> kate rogers, thanks
don't forget monday cramer's got jamie dimon of jpmorgan. dimon's made some provocative comments in the last couple of weeks. but leave it to jim to get the truth out of him when he talks to him about banking, the economy, trade and a lot more coming up on monday. dow session high was 103 so we're just shy of that as we head into a busy, obviously,
week next week with the fed and a whole lot more >> i think monday some of the telecom tech and media companies being one to watch >> short-term micron pain from intel. amd is up 2.5% for once. let's get to the judge and "the half." i'm scott wapner does the best week for stocks in two months means it is time to get even more bullish on the markets? it's noon and this is "the halftime report. what a week. now where will the bulls run, and what sector will lead them will it be the banks having their best week since may? or is tech about to step it up mario gabelli is live and exclusively. plus, big calls on at&t, under armour, and micron "the halftime report" starts right now. and we welcome you to the program this friday. here to debate and trade the biggest stories of the